Subscription alchemy: How to build lasting customer loyalty 

Customer loyalty is like gold dust in today’s volatile economic landscape. With inflation reaching decades-high levels, customers are adjusting their buying habits and have no qualms about switching to more cost-effective brands to get the deals and benefits that matter to them. 

Price isn’t the only deciding factor for consumers. What makes a brand’s relationship with customers really unique is the ongoing value exchange. If brands can provide meaningful offers that feel relevant and personalized to the individual customer’s needs, customers will reward this with their loyalty.

Getting this ongoing value exchange right requires some alchemy – turning a simple brand interaction into the fuel for effective customer retention. 

In this blog, we’ll give you the winning formula: combining the psychology of subscriptions with the power of personalization, the revenue impact of customer lifetime value, and the right technological tools. In the end, you’ll just need to sprinkle in your brand essence to crack the code to lasting loyalty.

Finding the customer value sweet spot

Customer value is not stagnant, and neither is customer loyalty. You need multiple touchpoints to enable continuous engagement to understand where customers find value in your brand. 

Loyalty programs and subscriptions both provide an effective basis for this customer-centricity to thrive and for your understanding of ‘value’ to evolve. They offer repeated opportunities for you to learn about your customer’s needs, preferences, and behaviors, which, over time, will help you create strong bonds with them and deepen your presence in their daily lives.

When you offer your customers high-value benefits and personalized communications, you give them compelling reasons to remain loyal to you, rather than switch to a competitor, even if that competitor offers a better price on a product or service. 

The psychology of subscriptions 

So, how do subscriptions and loyalty programs create this powerful effect on customer retention? Through the power of affinity, convenience, and (you guessed it!) value. They do 6 things really well:

1. Create emotional connections. You can recognize a customer’s long-standing status as a member or celebrate certain milestones with your brand, creating an environment where customers feel valued and appreciated.
   
2. Foster a sense of community. With subscription programs, your customers don’t just have a relationship with you – they also share a feeling of belonging with other subscribers. You can encourage this communal aspect through rewards programs, events, and contests.
   
3. Prompt usage. Subscriptions help you master the art of keeping your customers’ attention. For example, you can employ triggers to prompt customers to use a product or service, creating habitual behavior. These brand interactions enable you to learn about customers’ preferences and personalize product offerings, further strengthening loyalty.
   
4. Provide consistency and reliability. Subscriptions provide reliable and regular access to products or services in an “always on” experience, which not only makes them more affordable than a series of one-time payments but also provides convenience. This is why a staggering 8% of the US adult population (~5.8 million people) use Amazon Subscribe & Save to regularly replenish goods such as cleaning and household products.
   
5. Lower friction points. By subscribing to your service or product, customers can overcome common barriers associated with purchasing. This includes physical friction points – spending your gas money to go to a shop and wait at checkout – as well as digital elements. For example, offering a ‘freemium’ service creates an entry point for your consumers to experience your brand’s value proposition and eventually, upgrade to a paid service.
   
6. Offer choice and customizability. Subscribers can pay for additional value by choosing an upgrade – and similarly, they can flexibly downgrade or pause their subscriptions, instead of leaving the brand altogether. Giving customers choice and control over their relationship with you will make retaining their loyalty easier since they will see you meeting their needs. As the adage goes: if you love something, set it free – but do try some subscription-based customer retention tactics first so they come back!

The power of personalization 

We’ve now seen how subscriptions and loyalty programs – with their baked-in customer-centricity – can help you achieve the highest levels of personalization. According to McKinsey, companies that excel at personalization generate 40% more revenue than average players. In subscription terms, we have seen further benefits – for example, utilizing customer data to craft more relevant promotions can amplify offer usage by as much as eightfold.

Of course, consumer preferences can change over time, so to execute successful personalization, you need to keep an eye on behavioral and transactional data sets. These provide valuable insights into your customers’ purchase habits, including what they buy, how often they make purchases, and their preferred payment method.

Collating, analyzing, and managing this intelligence at scale demands expert technological capability and strong infrastructure. You’ll need both access to quality customer data and the ability to leverage it through effective offer delivery to retain customer loyalty.

Subscription management platforms like Chargebee help you do this effortlessly, with automated workflows designed to maximize retention rates. For example, you can automate payment recovery strategies to make sure they are optimized for particular customer segments and their response times. This way, you can easily retry failed payments that would otherwise lead to involuntary churn. Similarly, Chargebee’s proactive churn management suite can help you boost retention with cancellation alternatives for subscribers who are considering leaving – re-engaging them with the right offer, at the right time.

When you consider that retaining an existing customer costs five times less than acquiring a new one, it becomes important to look at personalization and value at scale. As you measure these, you will inevitably come across a key metric: customer lifetime value (CLV).

The revenue impact of customer lifetime value

Customer lifetime value provides a customer-centric viewpoint to inform retention strategies. It indicates the average revenue you can generate from a customer over the entire lifetime of their account. 

The subscription business model lends itself perfectly to maximizing CLV and thus boosting your retention efforts. This is because subscriptions offer you a more loyal customer base with predictable purchasing patterns. Contrast that with relying on one-time sales to customers who may or may not return, and you won’t be surprised to hear that subscription-based businesses grow five times faster than their traditional peers. 

Subscriptions drive revenue growth through improved CLV, loyalty, and customer retention. There are three main reasons why:

1. Subscription programs provide you with a predictable revenue stream with ongoing growth potential. Unlike static revenue figures that remain constant monthly, subscription revenue compounds with each new subscriber. As long as you can acquire new subscribers at a pace that surpasses customer churn, revenue grows exponentially.
   
2. Subscribers typically have a higher CLV than regular customers. Over time, they spend more than customers who make occasional purchases.
   
3. Subscribers are inherently easier to retain than customers who require constant reacquisition efforts. The costs associated with retaining existing customers are also significantly lower than the costs incurred acquiring new ones, which further helps brands maximize CLV.

Technology tools for customer retention success

Subscriptions and loyalty programs go hand in hand in some ways, namely that they work towards the same goal of boosting customer lifetime value and loyalty. However, for your technical teams, these might feel like disjointed processes. The good news is that they don’t have to be! 

Hybrid models – which merge subscriptions with loyalty programs – can be extremely successful when integrations are implemented with the right technology partners. This is why Chargebee and Eagle Eye work so closely!

With Chargebee, you can:

• Rapidly launch and iterate subscription-based plans and products through freemium, trial, and paid offerings
• Provide tailor-made offers for long-time subscribers and those most likely to churn, thus mitigating cancellations
• Gain actionable insights and analytics on those customers who do churn to sharpen and refine future customer retention strategies
• Benefit from the automation of collections, revenue recovery, revenue recognition, and more

With Eagle Eye, you can gather, manage, and execute engagement strategies utilizing customer data with your systems, such as point of sale, CRM, and loyalty program databases. It provides a comprehensive digital marketing toolkit encompassing:

• Real-time digital loyalty programs
• Personalized promotions
• Gifting and cashback initiatives
• Charitable donations
• Third-party partnerships and coalitions

The seamless integration between Chargebee and Eagle Eye means that your own team can focus on what they do best – while the subscriptions and loyalty experts alleviate manual management burdens and provide you with tools and best practice advice to help you succeed. 

Want to learn more about how Chargebee and Eagle Eye can help you supercharge your retention strategies and build lasting loyalty? Read our new e-book.